NEW YORK (CNNfn) - Northwest Airlines Corp. has agreed to acquire a controlling stake in Continental Airlines Inc., the nation's fifth-largest carrier, Minneapolis-based NWA said Monday.
Northwest said it will acquire the Continental common stock held by Air Partners L.P. for $519 million. The limited partnership, managed by David Bonderman and James Coulter, received the stock after helping bring Houston-based Continental out of bankruptcy.
In addition, Northwest has entered into a strategic global alliance with Continental that includes code-sharing, frequent flyer program reciprocity, and cooperation between Continental and Northwest's trans-Atlantic partner, KLM Royal Dutch Airlines. The carriers said the pact will offer passengers the benefits of greater scope, ease of ticketing, check-in and luggage handling.
Still, the two airlines emphasized that they have no plans to merge their operations and will retain separate boards, managements and headquarters.
As part of a corporate governance agreement with Continental, Northwest has agreed to limitations on its rights as a stockholder in order to guarantee the independence of the Continental board and its management.
No layoffs, work-forces mergers, asset sales or closures of facilities are planned.
Certain aspects of the alliance agreement are contingent on the successful conclusion of negotiations with Northwest's pilots' union. The acquisition is also subject to review by the departments of Justice and Transportation.
Air Partners and its affiliates own 8,535,868 shares, or about 14 percent, of Continental's class A common stock, which represents approximately 51 percent of its outstanding common stock voting power. Northwest will pay $311 million cash and 4,124,190 shares of newly issued Northwest common stock.
After the transaction is completed, and assuming completion of the repurchase of Northwest stock held by KLM, approximately 4.6 percent of Northwest's outstanding stock will be held by the Bonderman/Coulter investment group.
Continental also held talks with Delta Air Lines Inc. before striking a deal with Northwest.
Negotiations between Atlanta-based Delta and Continental were first held in late 1996 and heated up last week. But a letter to Delta employees indicated that talks may have fallen through because of an unwillingness to cut jobs.
"Of critical importance, all Delta employees should know that protection of employees' interests was foremost among the issues discussed," Delta Chief Executive Leo Mullin said.
-- from staff and press reports